Gilead: Low Risk, Major Upside

02/10/2016 8:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

In our search for outsized value, this leading biotechnology stock—with exceptional growth potential plus compelling downside protection—stands out, asserts growth expert Stephen Leeb, editor of The Complete Investor.

Gilead Sciences (GILD) is being added to our Growth Portfolio. The stock’s single-digit multiple attests more to the success of the drug company’s medicines than to any failings.

Its treatment for hepatitis C cures rather than manages this serious virus, meaning that patients, fully cured, have no further need for the drug.

This follows the company’s success with AIDS drugs, a market where the company leads by a wide margin. It recently introduced a medicine reducing a cocktail of AIDS drugs to a single medication.

With these triumphs, revenues have quadrupled in the last five years and earnings have risen six-fold.

But while revenues from Gilead’s hep C and AIDS therapies will remain high, future earnings growth will depend on there being encores.

Clearly, investors are betting against this, as shown by the stock’s rock-bottom multiple and 12% free cash flow yield.

Not only does Gilead have potential blockbusters in its relatively near-term pipeline, it also has the cash to purchase other companies with potentially major drugs in latter stages of development.

A top candidate for a blockbuster is simtuzumab, now in phase 2 trials. This is a potential treatment for non-alcoholic steatohepatitis (NASH), a serious liver disease that affects about 3% of Americans.

Gilead also is developing oncology treatments around a drug purchased in late 2014.

Even if a new blockbuster does not materialize, free cash flow and profits are still set to grow at a modest rate for the remainder of the decade, which is more than enough to limit risk.

This exceptional combination of low risk and major upside potential makes Gilead an outstanding investment, especially in these rocky times.

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